Business Context and Reporting Period
Argo Blockchain plc, a UK-based cryptocurrency mining company listed on the London Stock Exchange and Nasdaq, filed a Form 6-K on 27 April 2022 containing audited full-year results for the year ended 31 December 2021. Operations focus primarily on Bitcoin mining, with additional blockchain investments through Argo Labs and a 24.65% interest in Pluto Digital plc.
The financial statements were prepared under UK-adopted international accounting standards. The independent auditor reported that the financial statements gave a true and fair view and were properly prepared.
Financial and Operating Highlights
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | £74.2 million | £19.0 million | +291% |
| Gross profit | £53.6 million | £3.9 million | Substantial increase |
| Mining margin | 84% | 41% | +43 percentage points |
| Operating profit | £42.8 million | £1.6 million | Substantial increase |
| EBITDA | £52.9 million | £7.6 million | +594% |
| Profit after tax | £30.8 million | £1.4 million | +2,033% |
| Basic EPS | 7.7 pence | 0.5 pence | Increase |
| Cash and cash equivalents | £11.8 million | £2.1 million | Increase |
| Digital assets | £80.8 million | £4.6 million | Increase |
| Total debt | £53.7 million | Not material in the filing | Increase |
Revenue consisted mainly of cryptocurrency mining revenue of £70.3 million and cryptocurrency management fees of £3.9 million. The reported margin benefited from higher Bitcoin prices and lower network difficulty after the Chinese mining ban.
Operating cash flow was negative £27.8 million, while investing cash flow was negative £137.6 million, primarily reflecting purchases of mining equipment, infrastructure and digital assets. Financing cash flow was positive £175.1 million, mainly from equity and debt issuance. Year-end net debt was £42.3 million; including digital assets treated by management as liquid holdings, the Group reported net funds of £65.4 million.
Capital expenditure totaled £160.3 million, principally for Helios infrastructure and mining machines. Hashrate increased from 645 petahash to 1,605 petahash by year-end, and the Group mined 2,045 Bitcoin during 2021, 17% fewer than in 2020.
Material Changes Versus the Prior Period
- Revenue, EBITDA, profit after tax and mining margin increased sharply, driven by fleet expansion, Bitcoin price appreciation and temporarily lower network difficulty.
- The Group moved toward an owned-and-operated model through the acquisition of two Quebec data centres and the Helios project in Texas.
- Property, plant and equipment increased to £111.6 million from £10.5 million, while total assets rose to £287.7 million from £32.6 million.
- Equity increased to £201.8 million from £24.3 million, supported by approximately £144.0 million of equity raises during 2021.
- The Group issued approximately £29.1 million of unsecured notes and entered into a £22.2 million Bitcoin-collateralized loan with Galaxy Digital. The Galaxy loan was payable on demand and carried an 8% interest rate.
- Bitcoin holdings increased to 2,441 Bitcoin at 31 December 2021, valued at £80.8 million. The Group had pledged 1,504 Bitcoin as collateral for a loan.
Guidance, Outlook, Risks and Unusual Items
- Helios Phase 1, representing an initial 200 MW, was expected to begin mining operations in May 2022.
- Management expected hashrate capacity to reach 5.5 EH/s by the end of 2022 and more than 20 EH/s over the following years as the remaining 600 MW of Helios capacity is developed.
- Additional spending to complete Helios Phase 1 was estimated at £93 million to £100 million, expected to be funded primarily through debt and sales of a portion of monthly Bitcoin production.
- Argo purchased 20,000 Bitmain S19J Pro machines, with delivery and installation expected between May and October 2022, and signed a supply agreement with Intel for Blockscale ASIC chips.
- Post-year-end, Argo raised £19.8 million of equipment financing secured by Helios electrical infrastructure and agreed to exchange approximately 10,000 hosted S19 machines for equivalent-hashrate S19J Pro machines at Helios.
- Material risks include Bitcoin price volatility, increasing global network hashrate and mining difficulty, equipment delivery and construction delays, access to financing, liquidity requirements, collateral calls, foreign exchange exposure, regulatory uncertainty and dependence on electricity costs.
- The filing identifies a £9.6 million capital commitment for Texas assets and states that Core Scientific hosting commitments could not be quantified because power usage and foreign exchange rates fluctuate.
- Results include significant fair-value movements in digital assets, a £1.2 million share of loss from Pluto Digital, an £8.5 million tax expense, a £1.9 million share-based payment charge and an £8.1 million contingent consideration liability related to Helios.
- Management concluded that the Group remained a going concern based on projections through 31 December 2023, available cash, Bitcoin holdings and expected profitability. This assessment remains highly sensitive to cryptocurrency prices and access to funding.
Most Important Facts to Verify
- Whether Helios Phase 1 achieved the stated May 2022 operational start date and whether the 5.5 EH/s year-end 2022 target was achieved.
- Actual Bitcoin prices, network difficulty, global hashrate and electricity costs after the reporting date, because these materially affect mining profitability and asset values.
- The terms, repayment status and collateral coverage of the Galaxy Digital loan and subsequent Helios equipment financing.
- Funding sources and liquidity available for the remaining £93 million to £100 million Helios Phase 1 capital requirement.
- Delivery, installation and performance of the Bitmain and Intel-related mining equipment.
- The carrying value and liquidity of the Group’s Bitcoin and other digital assets, including assets pledged as collateral.
- Potential dilution from the 17.7 million outstanding options and warrants and the contingent consideration payable in shares.
- The final valuation and recoverability of Helios, mining equipment prepayments, digital assets and the Pluto Digital investment.